Securing talent and external finances are the biggest challenges for European scale-ups

Recruiting and retaining talented staff and securing external finances are the two biggest challenges that European scale-ups face, according to a new joint report from Vlerick Business School and Scale-Ups.eu. The report also shows that boards with external investors are much more professional and have a greater ability to grow.

The study was conducted by Professor of Entrepreneurship, Veroniek Collewaert, Professor of Finance, Sophie Manigart and researcher, Dr. Thomas Standaert, all from Vlerick Business School, on behalf of Scale-Ups.eu. The researchers used Scale-Ups.eu data to study over 80,000 European scale-ups, based across 8 European countries – Denmark, Finland, France, Germany, Luxembourg, the Netherlands, Sweden and the UK.

The scale-ups reviewed were set-up between 2007 and 2013, and had raised at least $1 million from investors since their inception or experienced an average annual growth in sales or employment of at least 20% per year over a period of 3 years. In addition, 124 of these scale-ups were also questioned about their management practices by the researchers to understand the main challenges for European scale-ups.

The researchers found that only 40% of scale-ups recruit staff from abroad, and only 25% of scale-ups use recruitment agencies or head hunters to attract the right talent for their companies. Also, only 36% of scale-ups have an onboarding process for new employees. The researchers state that it is mainly scale-ups with external funding that are much further ahead in terms of HR and would also benefit greatly from the development of a professional HR policy.

The researchers also found that though scale-ups are perceived to be highly innovative and tech-savvy companies, this is not predominantly the case. In fact, the researchers found that only 1 in 4 scale-ups indicate that they had created a product or service that is new on a global scale, and around 1 in 3 even state that they have created nothing new at all.

Professor Veroniek Collewaert says,

“Our research succeeded in both debunking and confirming a number of common views on scale-ups. They are not all innovative tech companies. Not all of them have raised external financing. Our study does confirm the intuitive view though that finding and keeping enough high-quality employees is the #1 growing pain. Knowing this, however, it is painstaking to see how relatively little effort is being put in developing more professional HR practices related to recruitment and retention.”

The researchers also found that almost 40% of the scale-ups only use their own resources to finance their growth, meaning that they are either not open to external financing or unable raise it. Whilst only 30% of the scale-ups in the study had already raised money from external equity investors, despite this method massively increasing the professionalism of scale-ups.

Jürgen Ingels, founder of Scale-Ups.eu says,

“External financing is an important factor for increasing professionalism and growth, however this proves one of the biggest challenges for scale-ups. High-quality networking and matchmaking are therefore extremely important. This report shows the need for time squeezing and also the reason for our organisation’s existence. If you aim to grow, seek out relevant investors and go for smart money, let them pave the way to your success.”

Respondents to the study also stated three other key challenges for scale-ups in their attempts to grow; access to the market, leadership and infrastructure.

The researchers hope that the findings from the scale-ups report and the examples of successes and challenges of other scale-ups can help inform and guide other early scale-ups that are still in the exploratory and trial phases. The full European Scale-up Report can be downloaded from this link: https://www.vlerick.com/en/research-and-faculty/knowledge-items/knowledge/european-scale-up-report-reveals-five-key-challenges.